Marine Midland Bank v. Greenfield, 486 N.E.2d 116 (N.Y. 1985)

A general partner’s authority to guarantee the debts of others on behalf of a partnership must be either expressly granted in the partnership agreement or demonstrably apparent through the conduct of the partnership; neither implied authority nor an individual partner’s actions are sufficient to bind the partnership.

Summary

Marine Midland Bank sued to enforce a partnership’s guarantee of a loan to Lincoln Plaza, Inc. The New York Court of Appeals held that the guarantee was unenforceable because the partner who executed it lacked actual or apparent authority to bind the partnership. The partnership agreement didn’t authorize guarantees, and the partner acted alone without the required consent of the corporate general partner. The Court found no basis to imply authority or to establish apparent authority. The presence of another partner’s attorney at a closing where part of the loan was rolled over was insufficient to demonstrate ratification of the guarantee by the partnership.

Facts

A partnership guaranteed a loan to Lincoln Plaza, Inc. in 1973. The lawsuit arose when Marine Midland Bank sought to enforce this guarantee. The partnership agreement didn’t explicitly grant general partners the authority to guarantee debts of others. One partner, Greenfield, executed the guarantee without seeking consent from LPT Inc., the corporate general partner. Mr. Saiman, an attorney for the partnership and assistant secretary of LPT Inc., was present at a closing where a portion of the loan was rolled over.

Procedural History

The trial court initially denied the defendant’s motion to dismiss at the end of the trial. The Appellate Division reversed, concluding that the motion to dismiss should have been granted. Marine Midland Bank appealed to the New York Court of Appeals.

Issue(s)

1. Whether the partnership agreement granted the general partners authority to guarantee the debts of others.
2. Whether Greenfield had authority to act alone without seeking the consent of LPT Inc., the corporate general partner.
3. Whether the partnership’s conduct vested Greenfield with apparent authority to execute the guarantee.
4. Whether there was sufficient evidence of ratification of the guarantee by the partnership to present the issue to a jury.

Holding

1. No, because the partnership agreement did not explicitly grant the general partners authority to guarantee the debts of others.
2. No, because Greenfield didn’t seek the consent of LPT Inc., the corporate general partner, and therefore lacked authority to act alone.
3. No, because there was no factual showing of conduct on the part of the partnership that would vest Greenfield with apparent authority.
4. No, because the evidence of Saiman’s knowledge and the partnership’s receipt of loan proceeds was insufficient to present a jury issue of ratification.

Court’s Reasoning

The Court reasoned that authority to execute the guarantee could not be implied as a matter of law, citing First Nat. Bank v Farson, 226 NY 218, 223. It emphasized the absence of conduct by the partnership that would suggest Greenfield had apparent authority, referencing Greene v Hellman, 51 NY2d 197, 204, and Ford v Unity Hosp., 32 NY2d 464, 472-473. The Court found Saiman’s presence at the closing, in his capacity as the partnership’s attorney, insufficient to establish ratification. His simultaneous role as assistant secretary of LPT Inc. did not give him authority to ratify the guarantee on behalf of the partnership. The Court also noted the evidence of Saiman’s knowledge was “so equivocal as to be insufficient to present a jury issue of ratification,” citing Holm v C. M. P. Sheet Metal, 89 AD2d 229. The court in essence held that express authorization or a clear pattern of partnership conduct is needed to bind the entity to such guarantees.